ACEEE | Clean Distributed Generation

Clean Distributed Generation

Distributed generation is the generation of electricity from sources that are near the point of consumption, as opposed to centralized generation sources such as large utility-owned power plants. Centralized generation facilities are widely prevalent in industrialized countries, the vast majority of electricity being generated by centralized coal, natural gas, oil, nuclear, and hydropower plants. While centralized plants have good economies of scale, they usually transmit electricity long distances, requiring more energy to make up for transmission and distribution losses.

Clean distributed generation systems, such as combined heat and power (CHP), reduce the amount of energy lost in transmitting electricity because the electricity is generated near the point of consumption, often even in the same building or facility. This also reduces the size and number of power lines that must be constructed. CHP is more energy efficient than separate generation of electricity and thermal energy because the heat that would normally be wasted in conventional power generation is recovered as useful energy for satisfying an existing thermal demand, such as the heating and cooling of a building or water supply.

Despite the economic, energy, and environmental benefits of distributed generation, such systems face market and regulatory barriers, which differ among states and utility territories. Regulations dealing with air emissions, interconnection, net metering, and standby rates can often determine whether a distributed generation project will be implemented.

More on Distributed Generation

Click a state to view its clean distributed generation policies.

Within the realm of clean distributed generation, ACEEE focuses on six areas of policy:

Interconnection Standards

To remain economically viable, combined heat and power (CHP) systems and other distributed generation (DG) technologies rely on the ability to purchase backup power from the electric grid, and to sell excess electricity they generate back to it. The lack of a consistent standard that explicitly establishes parameters and procedures for connecting to the grid drives up both monetary and transaction costs for technology manufacturers and owners, discouraging CHP deployment. More...

Financial Incentives for CHP

State financial incentives are an important instrument for increasing the use of technologies that provide benefits to both residents and the state overall. The incorporation of a financial incentive can make energy efficiency investments more alluring for private and public entities. Homeowners and businesses not only save energy but also reduce pollutants, improve electric system reliability, and save significant amounts of money over the life of their investments. Financial incentives also help newer technologies, such as micro-CHP, to overcome barriers to market entry. More...

Standby Rates

Along with clear interconnection standards, a second condition for the economic viability of CHP is that the avoided costs of purchasing electricity from the grid be greater than the capital and operating costs involved in building the facility. Excessive standby rates and other charges can upset this balance by adding to operating costs, negatively impacting the economics of CHP systems. More...

Output-Based Emissions Regulations

Output-based emissions regulations define emissions limits based on the amount of pollution produced per unit of useful output (e.g., pounds of sulfur dioxide per megawatt-hour of electricity). A major benefit of output-based emissions standards is that they encourage cost-effective, long-term pollution prevention through process efficiency. Efficient distributed production of electricity from fossil fuels reduces fuel inputs compared to conventional generation and transmission systems, and leads to fewer emissions of all pollutants, not just those limited by regulation. More...

CHP in Renewable Portfolio/Energy Efficiency Standards

With an Energy Efficiency Resource Standard (EERS) or Renewable Portfolio Standard (RPS), not only are utilities required to meet state targets, but the standards are often paired with financial incentives or support programs to implement and encourage eligible technologies. Thus, when CHP is explicitly listed as eligible for RPS or EERS credit, it creates a large incentive for deployment. More...

Net Metering

Net metering allows owners of small distributed generation systems to get credit for excess electricity that they produce on-site. Under net metering rules, the customer installs a bi-directional meter that spins backwards when electricity is being sent back to the grid, offsetting the electricity purchased at another time. Like interconnection standards, there are many examples from which states may draw when designing net metering rules. However, not all rules are created equal. More...

Leading States

California

California has CHP-friendly standby rates, streamlined interconnection standards for systems up to 10 MW, and emissions regulations that acknowledge the benefits of CHP systems by including a mechanism to credit useful thermal output. The state also promotes CHP through financial incentives. Its Self-Generation Incentive Program (SGIP) provides rebates for electric utility customers who install clean distributed generation.

New York

New York was the second state to adopt uniform interconnection standards for distributed generation systems, and adopted modifications in 2002 to streamline the application process. In 2004, the maximum capacity of interconnected systems was increased from 300 kW to 2 MW and interconnections were expanded to the state’s more complex distribution systems, or “networked” systems, which exist in large, urban areas including New York City. Through the New York State Research and Development Authority’s Distributed Generation and Combined Heat & Power program, the state has provided significant financial incentive and technical assistance to encourage CHP deployment. Over the last seven years, these programs have invested over $94 million, about 75% of which has resulted in permanent equipment in the field with a capacity of about 192 MW.

Connecticut

Connecticut has developed interconnection standards applicable to CHP systems as large as 10 MW, and has established multiple size tiers so that smaller systems may benefit from easier interconnection processes. Its emissions regulations provide credit for thermal output for highly efficient CHP systems, and CHP is explicitly listed as an integral part of the state’s renewable portfolio standard.